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Juicy Targets

States are hurting for money, and corporations may offer the path of least resistance.
Julia Homer, CFO Magazine
January 1, 2004

In the eight years since CFO magazine started surveying corporate tax executives on their perceptions of state tax practices (see "Stingers,"), relations between the states and corporations have only grown more waspish. This year, survey respondents stopped short of calling state auditors bloodsuckers—but just barely. Sometimes the states deserve it: New Jersey, for instance, instituted sweeping changes to its tax code, including retroactive changes and a new alternative minimum tax, that some businesses say are as much insult as injury.

The states, for their part, are feeling put-upon, bruised by federal tax cuts, and hurting for money. Given the ballooning federal deficit, we can expect that pain to intensify.

The problem is, the real dollars are in property, sales, and income tax, not corporate income tax, as tax expert Michael Lippman of rightly points out. But property taxes have already skyrocketed, and raising sales and individual income-tax rates is political suicide. That leaves aggressive collection as the path of least resistance, and corporations as the easiest targets.

What's more, having lost battles in the courts on nexus issues, states are now turning to their legislatures to get what they want. There's a lot of room to argue whether states are right or wrong, but it's indisputable that they are mad as hell and they don't want to take it any more. Corporate tax officials are just as mad—but they may have to take it.

Clearly, we are entering a new age of escalating tax-law battles, and the only certainty is that there will be no winners except the tax attorneys.




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